Is Probate Always Required?

Probate is the legal process that comes into play when you directly own property at the time of your passing. This process would be a factor if you use a last will to express your final wishes, and the probate court would sort things out if you had no estate planning documents at all.

There are a number of different ways that property can be transferred outside of the process of probate. We will look at some of them in this post.

Payable on Death Accounts

When you are opening a bank account or a brokerage account, you may have the opportunity to add a beneficiary to the account. This is called a payable on death (POD) or transfer on death (TOD) account.

If you add a beneficiary to a payable on death account, the beneficiary would assume ownership of the assets that remain in the account after your passing. The transfer would not be subject to the process of probate.

While POD and TOD accounts work in some circumstances, they are not the solution for all accounts. First, they do not allow a transfer until death, thereby providing no assistance if you become incapacitated and someone needs to takeover their management. They are also a poor way to transfer funds to young persons, disabled persons or persons who may be poor money managers.

Retirement Accounts and Life Insurance Proceeds

If there is an insurance policy on your life or you own a retirement account, such as an IRA or 401k plan, the beneficiary you have designated would receive the proceeds after you pass away. The company would pay the beneficiary directly, and the probate court would not be involved.

Like financial accounts, use of beneficiary designations only work in some circumstances. They do not allow a transfer until death, thereby providing no assistance if you become incapacitated and someone needs to takeover their management. They are also a poor way to transfer funds to young persons, disabled persons or persons who may be poor money managers.

Joint Tenancy

If you own property, you may be able to add a co-owner to the property. This is called joint tenancy.

Let’s say that you add your daughter to the title of your home. She would be a joint tenant, and she would own half of the home as soon as you add her to the title.

After you pass away, your daughter would assume ownership of the entirety of the property, and this transfer would take place outside of probate.

Many problems can arise with the use of joint tenancy, including exposing your assets to the problems of your co-owner. These can include assets seizures and liens if there are unpaid taxes and judgments. There is also the potential for a loss of a significant income tax benefit on the transfer of appreciated assets such as real estate and investments.

Revocable Living Trusts

As noted, there are numerous drawbacks and limitations that go along with the methods that we have touched upon to this point. If you want to facilitate asset transfers outside of the probate process, you may want to consider the creation of a revocable living trust.

Because the trust is revocable, you can change your mind. You can revoke the trust and assume direct possession of the property at any time.

When you create the trust, you can act as the trustee and the beneficiary while you are alive. As the trustee you control the actions of the trust.

You name a successor trustee to administer the trust after you pass away, and you name beneficiaries to succeed you. After you pass away, the successor trustee can distribute assets to the beneficiaries. These distributions would not be subject to the probate process.

Learn More About Probate

If you would like to obtain some in-depth information about the probate process, download our special report. This report is being offered free of charge, and you can access your copy through the Reports section of this website.

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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